The Economy is What Happens When You’re Busy Making Election Plans

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postersAn interesting piece of information came out from the CSO last week, three days before polling day. It showed increases in employment falling to a trickle.

Are we seeing a new pattern emerging or just a short-term blip on the long road to full employment? Let’s look at the trend.

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There are a couple of points to make here.

First, a significant part of the big increase during 2013 is likely to have been statistical (I discussed this here). During this period the CSO was making adjustments to its sampling base and specifically warned against interpreting trends. Employment increased phenomenally during this period even though we were still in a domestic demand recession which is be a big strange. Once the CSO ended their adjustments employment increases fell to almost nil – one more suggestion that the 2013 surge has to be treated cautiously. This is more than just a historical point; it may go some way in explaining why people weren’t feeling the recovery – because tens of thousands of jobs were only created on paper.

After 2013, employment statistics are more robust. It started off slow and rose to 16,000 jobs created in the second quarter of last year. But now we come to the second point.

In in the second half of last year employment increases slowed substantially. In the last quarter in 2015, employment rose by less than 5,000 – nearly two-thirds down on what was happening only six months previously. In the first half of 2015 employment rose by 30,000; in the second, 12,000. That’s a considerable deceleration.

How do we explain this? As mentioned, it could be a blip – one has to look at the long-term trend. Or we could be seeing pent-up demand coming through in 2014 as the economy burst out of a lengthy period of recession and stagnation. As the economy settles down – the Government expects GDP growth to slow considerably in a couple of years – so will employment. Are we seeing the beginning of those trends?

I suspect employment will return to stronger growth due to two sectors: construction and the broad public sector. Construction employment growth has flat-lined in the last six months; this will change over the medium-term. Similarly, with public sector employment – the next Government will have to start rolling back the moratorium if we are to start repairing our public services.

But there is a huge question mark over the growth of employment in the market economy – that part of the economy which excludes agriculture and public sector. When we exclude the construction sector we find the market economy producing far less – an average of 4,100 jobs per quarter over the last two years (since the CSO ended their sampling adjustments). This is better than losing jobs but it is a sluggish sector – especially when compared with the EU-15.

notf2This data – which is not seasonally adjusted – shows that the Irish economy grew at more than three times the pace of the EU-15. But our employment growth in the market economy excluding construction was marginally below that of the EU-15.   We grow and grow but can’t even generate the same number of market economy jobs as low-growth, recession-flirting Europe.

So what might we be facing into? As referred to, this may all be just a short-term quirk. However, we should keep watching this space. Will employment growth start to rise again? Hopefully.

However, we also have to watch the market economy space. If employment grows but we are over-reliant on construction and the public sector, we may be in danger of repeating pre-crisis mistakes (just as the tax-cutting agenda will do).

The general election focused on tax cuts and spending increases; that is, fiscal issues. These are important. But, ironically, the economy – the generator of wealth, income, jobs and social prosperity – didn’t get much of a look-in.

This must be the new focus – with fiscal issues being debated in the context of generating economic growth. If not, we will not only be in danger of taking our eyes off the job creation ball, we may risk the ball hitting us in the head with a wallop.

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